TY - JOUR
AU - Svensson,Lars E.O.
TI - Trade in Risky Assets
JF - National Bureau of Economic Research Working Paper Series
VL - No. 2403
PY - 1987
Y2 - October 1987
DO - 10.3386/w2403
UR - http://www.nber.org/papers/w2403
L1 - http://www.nber.org/papers/w2403.pdf
N1 - Author contact info:
Lars E.O. Svensson
Department of Economics
Stockholm School of Economics
P.O. Box 6501
SE-11383 Stockholm
Sweden
E-Mail: lars.svensson@iies.su.se
M2 - featured in NBER digest on 1988-01-01
AB - This paper develops a theory of the international trade pattern in risky assets by applying the law of comparative advantage to asset trade. According to this law there is a tendency for a country to import assets that have relatively high autarky prices. The autarky price of an asset is high if the autarky real interest rate is low, or if the asset's autarky risk measure (the product of the risk premium and the asset price) is low. It is examined how autarky interest rates and risk measures are affected by international differences in (i) stochastic properties of output/endowment s , (ii) the rate of time preference, (iii) the degree of risk aversion, and (iv) subjective beliefs, and how such differences predict overall capital account deficits or surpluses as well as the composition of the capital account into trade in arbitrary risky assets and the special cases of sure indexed bonds, stocks (claims to output), and Arrow- Debreu securities.
ER -